Fiduciary liability, also known as pension trust liability, provides coverage for loss that the insured becomes legally liable to pay because of a claim made against the insured for any alleged wrongful act by such insured or by any other person for whom the insured is legally responsible. It also covers the defense costs in connection with a covered claim. The policy is written on a claims made form.
A wrongful act includes any violation of the responsibilities, obligations, or duties imposed on fiduciaries by the Employee Retirement Income Security Act (ERISA), as well as acts, errors, or omissions in the performance of the duties of the plan administrator.
The ERISA definition of a fiduciary is very broad. It is any person so named in the plan or any person who exercises any discretionary authority or control with respect to the management or administration of the plan or its assets.
The rules and regulations of ERISA include strict guidelines for fiduciaries. Failure to comply can result in lawsuits from employees, former employees, and beneficiaries, as well as the Secretary of Labor, Treasury Department, and Pension Benefit Guarantee Corp. The sponsor corporation as well as the individual fiduciaries are at risk.
ERISA also has a broad definition of what is considered an employee benefit plan. It includes any plan, fund, or program established or maintained for the purpose of providing employee benefits to its participants or beneficiaries. Under a fiduciary liability policy, the insured includes the following:
The sponsor organization
Any natural person in his/her capacity as fiduciary or administrator of the plan(s)
Most fiduciaries are unaware of their personal financial risk or that of the sponsor organization. Fiduciary liability coverage provides one way of reducing the risk and providing protection for the sponsor organization and individual fiduciaries.